The rating actions follow the outlook revision on the
foreign currency rating on Nigeria on Feb. 28, 2020, (see "Nigeria
Outlook Revised to Negative On Falling Foreign Exchange Reserves; 'B/B' Ratings
Affirmed). We do not rate financial institutions in Nigeria above the
foreign currency sovereign ratings, due to the direct and indirect effects that
sovereign distress would have on banks' operations. The banking sector is
exposed to inherently high economic imbalances because of Nigeria's reliance on
oil and its sensitivity to currency depreciation and high inflation. This
leaves banks vulnerable to asset-price shocks and asset-quality problems.

We revised our outlook on the sovereign to negative
because of risks stemming from further FX pressures, ongoing weak economic
performance, and rising government domestic and external debt. We estimate the
2019 current account deficit widened to 1.5%, owing largely to an increase in
the goods and services import bill. This, and a lack of external issuances,
caused reserves to decline to about $38 billion in January 2020. Furthermore,
to counter declining reserves the Central Bank of Nigeria (CBN) continued to
sell CBN bills to nonresidents and banks. In October 2019, local nonbank
participants were restricted from participating in CBN auctions resulting in a
large portion of CBN bills being held by nonresidents. These holdings could be
subject to changing foreign investor sentiment and a potential sell-off,
thereby creating risks to current reserve levels. Given these risks, we have
added CBN bills (and overdraft facilities from the central bank to the general
government) to general government debt. Therefore, our estimate of general
government debt, net of liquid assets, is now 39% of GDP in 2020-2023.

Nigeria's growth rates remain low relative to peers'
with similar wealth levels, and GDP per capita is declining. The extension of
bank credit to the private sector is still weak, although in its most recent
measure to boost credit, the CBN encouraged banks to increase lending by
maintaining a minimum loan-to-deposit ratio of 65%. Nigeria's private-sector
leverage is low in absolute terms and compares well with peers'. We expect that
private-sector credit will average less than 20% of GDP over 2020-2021. This is
explained by banks' muted risk appetite in current economic conditions. That
said, we could see some momentum in retail lending stemming from banks' digital
transformations to transactional banking. As a result of the above, we
anticipate higher credit growth of 10%-15% in 2020-2021, stemming both from the
CBN's regulatory intervention and an appetite for new business growth from the
banking sector. Credit growth could accelerate even further provided oil prices
do not decline below our base-case assumption of $50 per barrel. The banking
sector's asset quality is likely to improve gradually, with credit losses
normalizing at about 2% through 2021. This will in turn support banks'
profitability and capitalization. Banks will continue to focus on loan
recoveries and closely monitor their restructured loans, which should normalize
at about 10% of total loans in 2020.

We continue to think the sector will remain stable as
long as banks can navigate unpredictable regulatory changes. The sector's
profitability trend has been positive through the cycle and earnings volatility
has stayed generally in line with banks' competitive positions in the system.
Return on equity averaged 13.7% for rated banks during 2015-2018 and we
forecast it will average 17%-20% in 2020-2021. We expect core earnings will
continue to be resilient at 2.5%-3.0% of average adjusted assets in 2020
despite multiple regulatory pressures. We anticipate sector-wide pressure on
revenue following the recent regulatory intervention to restrict banks from
participating in government securities auctions.

We believe banks' regulatory capitalization is less at
risk today than it was in 2016. Systemwide pressures on U.S. dollar funding and
liquidity eased when the CBN introduced the Nigerian Autonomous Foreign
Exchange Fixing Mechanism in 2017, while external liabilities of the public and
financial sectors have been rising substantially.

We see a stable economic risk trend, reflecting the
banking sector's slow asset-quality recovery. We forecast the banking sector's
credit losses will moderate at about 2% of total loans amid broadly flat or
marginally positive credit growth in real terms in 2020-2021. We could improve
our view of economic risk in Nigeria if we see more robust economic growth,
which in turn would support lending growth.

The industry risk trend is stable, reflecting our
expectation that competitive dynamics, while intensifying, will support a
stable and profitable banking sector over the next 12-24 months. Nigerian banks
are better positioned to adopt the additional buffer for domestic systemically
important banks now given that they implemented International Financial Reporting
Standards 9 in 2018 using their regulatory risk reserves. Furthermore, although
systemwide pressures on U.S. dollar funding and liquidity have eased, we
consider banks' net external position remains a tail risk given the managed FX
regime.

The negative outlooks on Access, GTBank, UBA, and
Zenith reflect that of Nigeria.

Downside scenario. We would lower the ratings on
the banks if we were to take a negative rating action on Nigeria
(B/Negative/B). This could happen if Nigeria's international reserves decline
markedly, external debt rises significantly faster than our current
assumptions, or if our projections of gradual fiscal consolidation do not
materialize.

Upside scenario. We would revise the outlook to
stable if we take a similar action on the sovereign, all else being equal. This
could happen if FX reserve levels rose, or fiscal deficits were to reduce
faster than we project.

Ecobank Nigeria Ltd.

The negative outlook on ENG reflects that of Nigeria.
It also reflects our expectation of group support over the next 12 months.

Downside scenario. We would lower the rating on
the bank if we lowered the rating on Nigeria. This could happen if Nigeria's
international reserves decline markedly, external debt rises significantly
faster than our current assumptions, or if our projections of gradual fiscal
consolidation do not materialize. We would also lower the ratings if we
observed a significantly lower likelihood of extraordinary support from the
parent, Ecobank Transnational Incorporated.

Upside scenario. We would revise the outlook on
the bank to stable if we take a similar action on the sovereign, all else being
equal. This could happen of FX reserve levels rose, or if fiscal deficits were
to reduce faster than we project.

Stanbic IBTC Bank Plc

The negative outlook on Stanbic IBTC reflects that on
Nigeria. It also reflects our expectation of group support over the next 12
months.

Downside scenario. We would lower the rating on
the bank if we lowered the rating on Nigeria. This could happen if Nigeria's
international reserves decline markedly, external debt rises significantly
faster than our current assumptions, or if our projections of gradual fiscal
consolidation do not materialize. We would also lower the ratings if we
observed a significantly lower likelihood of extraordinary support from the
parent, Standard Bank Group.

Upside scenario. We would revise the outlook on
the bank to stable if we take a similar action on the sovereign, all else being
equal. This could happen of FX reserve levels rose, or if fiscal deficits were
to reduce faster than we project.

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